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Procedia Economics and Finance 35 (2016) 117 – 126

7th International Economics & Business Management Conference, 5th & 6th October 2015

The Effects of Environmental Disclosure on Financial

Performance in Malaysia
Norhasimah Md Nor, Norhabibi Aishah Shaiful Bahari, Nor Amiera Adnan, Sheh
Muhammad Qamarul Ariffin Sheh Kamal, Inaliah Mohd Alia*
a
Department of Business Management and Accounting
Universiti Tenaga Nasional, Kampus Sultan Haji Ahmad Shah, 26700 Muadzam Shah, Pahang, Malaysia

Abstract

Global warming and climate change have been the most challenging environmental problem the world is facing. This problem
will affect the future of this planet which can be seen from different stances. The public concern over the problems caused by
climate change has led to the emergence of new environmental regulations. Environmental accounting is one of the elements
that contribute to the corporate governance. Motivated by the opportunity environmental accounting could achieve the
sustainable growth and development, the present study aims to investigate the existences of the environmental disclosure and
financial performance among top 100 company of market capitalization in Malaysia for the year 2011. The needed information
was examined by content analyzing the companies’ annual report. The analysis shows mixed results between the existence of
the environmental disclosure practices in Malaysia and financial performance. This issue is still ongoing debating at
international and national level since the environmental accounting is on developing and expanding as the social focus towards
environment is increasing. There are no such regulations and statutory requirements for the companies in Malaysia to disclose
on the environmental sustainability. However, the need for environmental disclosure is still there if the companies want to
legitimize their position among the society to enhance the expectation in measuring the environmental. It is the role of
regulators to facilitate provision of such information that need to be disclose by the companies without comprising the need of
various parties.
© 2016 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license
© 2015 The Authors. Published by Elsevier B.V.
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-reviewed under responsibility of Universiti Tenaga Nasional.
Peer-reviewed under responsibility of Universiti Tenaga Nasional
Keywords: Accounting; Environmental disclosure; Environmental accounting; Environmental sustainability; Financial performance

1. Introduction

In the late 1990s, the environmental accounting has been introduced in Malaysia and it is one of the element
contribute to the corporate governance. Environmental information is one of the elements disclosed in corporate
social responsibilities (CSR). Even though at the first introduction of the environmental accounting is a voluntary
disclosure, however there are rapid acceptances as the communicating of commitments toward the performance
of the stakeholder including the emerging countries especially Malaysia (ACCA, 2002). The accounting profession
and authoritative bodies had arisen the issue that proper record of environmental performance as business
community considered the issue as important interest for them (Rezaee, Szendi, and Aggarwal, 1995). The
awareness of the importance of disclosing the environmental information had rising among the business
community.

* Corresponding author. Tel.: +06-094552020; fax: +06-094552007.

E-mail address: inaliah@uniten.edu.my

2212-5671 © 2016 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-reviewed under responsibility of Universiti Tenaga Nasional
doi:10.1016/S2212-5671(16)00016-2
118 Norhasimah Md Nor et al. / Procedia Economics and Finance 35 (2016) 117 – 126

The meaning of environmental accounting is to achieve the sustainable growth and development and foremost
to maintain the relationship between the community (Ministry of the Environment, 2005). Environmental
accounting is a type of accounting in the accounting field (Mahenna and Dorweiler, 2004). It is also integral part
of accounting. The environmental accounting is on developing and expanding as the social focus towards
environment is increasing, thus, it enhances the expectation in measuring the environmental (Mahenna et al, 2004).
International Organization for Standardization (ISO) had introduced the ISO 14000 series of standards which
includes various aspects of environmental management as it provided practical tools for companies in order to
enhancing their environmental performance as well as lead to increase the company’s productivity and success
(Abdullah and Fuong, 2010).
Unfortunately, there are no such regulations and statutory requirements for the companies in Malaysia to
disclose on the environmental sustainability (ACCA, 2002). The Malaysia Accounting Standard Board (MASB)
does not provide a precise standard on the environmental disclosure as guideline to prepare environmental
disclosure in the company’s annual report, however according to Paragraph 10 of FRS 101 that is the Presentation
of Financial Statements had encourages entities to prepare environmental report in addition to the financial
statements provided by them (Buniamin, 2010). Apart from that, there is also a requirement under the Malaysian
Environmental Quality Act 1974 that is currently used by Malaysian Companies as the guidelines in managing
and disclose on their environmental sustainability as Section 33A of the Act stated the environmental audit and
Section 34A stated the report on impact on environment resulting from prescribed labeling (Bursa Malaysia, 2012).
These requirements from the Act are the only guiding principle for the companies on how to establish a disclosure
on environmental sustainability; however the information to disclose is decided by the company itself.
The awareness about state of environment is not a new phenomenon among various groups of stakeholders
(Johnson, 2005). There are a lot of researches about the environment disclosure (Nilandri, Pattanayak, and Mitali,
2008). Nowadays, the demand for company to apply environment disclosure is very high in order to save the world
and it is proved that company with environment disclosure can achieve good performance. There are many effects
to the financial performance with the existence of environmental disclosure. The question to answer is that the
effect to financial performance as there is existence of environmental disclosure in a company. This research aims
to identify the influence of the existence of environmental disclosure reporting towards the financial performance.
The previous research that had been done only determine the ISO 14001 certification towards the financial
performance and the motivations for their environmental commitments (Goh E. A., Suhaiza, and Nabsiah, 2006).
ISO 14001 applies the environmental features that the organization recognizes which it can control and influence.
It does not state any specific environmental performance criteria. Therefore, this research is a study on the effect
of existence of environmental disclosure towards the financial performance especially for the public-listed
companies (PLCs) in Malaysia. Although there are researches that had been carried out to identify the
environmental disclosure that affect the financial performance, there are few studies had been performed using the
return on assets (ROA), earnings per share (EPS), return on equity (ROE) and profit margin as its subject.

2. Environmental Disclosure Development in Malaysia

Malaysia demonstrate most of the environmental problems since Malaysia is still a developing country and
developing economies as it includes the massive logging of primary forest which results in the loss of wildlife
habitats, soil erosion and the displacement of native communities (Perry and Singh, 2011). The dumping of
hazardous waste, air and water pollution from industry and urban transportation leads to the environmental
problems in Malaysia.
The stronger role that environmental NGOs are playing in encouraging environmental protection in Malaysia
leading a significant difference between Malaysia and Singapore (Perry et al, 2011). Long-established
environmental and consumer protection campaign groups have been joined by groups representing business
interests. Apart from that, according to the authors in the year 1992, an environmental committee had been
established by Malaysian International Chamber of Commerce and Industry (MICC) as the same year of formation
of Business Council for Sustainable Development due to large number of environmental issues in the Malaysia
Five-Year Plan and also due to awareness of international business as they open to any tightening regulations.
Besides, MICC also not only providing business with cooperative representation to government but as well as it
also provide an environmental award to organizations as to recognizes them as they had shown environmental
leadership which is the Prime Minister’s Hibiscus Award. Apart from that, the award is co-organized with
Federation of Malaysian Manufactures and also ENSEARCH which is an NGO that representing the
environmental scientists and managers. It also stated that in the year 2000, there are 39 companies that had received
the award as they had met the criteria to obtain the award as the award would enhance the company’s reputations.
In early 1990s, the development of environmental disclosure practices has taken place as there are a large
numbers of studies worldwide that discussing the role of environmental disclosure in business practices (Nilandri
 Norhasimah Md Nor et al. / Procedia Economics and Finance 35 (2016) 117 – 126 119

et al, 2008). However, there are lacks of research on environmental disclosure in Malaysia (Haslinda, Normahiran,
and Noraini, 2005). As uttered by Williams (1999), the Malaysia disclosure practices of the environmental are far
behind the development compared to other Asia-Pacific countries, in which, Malaysia practices towards the
environmental disclosure is still lacking as it is not widely implement by the companies within Malaysia. In
Malaysia state, the studies on the research on environmental disclosure is at their premature years as to be
compared with the developed country such as United States and United Kingdom that are in their qualified
exploration for the research (Haslinda and Glen, 2006). The implication to why environmental disclosure is in its
infancies that Malaysians have little idea how the activities of local companies affect their natural environment
(Thompson, 2002) as well as the usual reasons for the companies not disclosing the environmental information
are because of the lack of recognized disclosing framework, cost of disclosing and also because of the concern of
reader’s reaction toward the disclosures (Perry et al, 2011).
According to Thompson (2002), the slow take of social and environmental disclosure in Malaysia are in
particular because of the legislative frameworks, the general disinclination between companies to be transparent,
and the authority and power of Malaysia’s government. Despite, Malaysia has wide legislative devices such as
Environmental Impact Assessment (EIA). As defined by Ramanathan (2001), EIA is a procedure to enact
legislation from the assessment of implication on environmental from the decision that have been made, to execute
policies or to initiate development. Therefore, it is crucial for major development to impose EIA as to enhance
environmental as well as EIA has led to ensure that environmental factors are taken into considerations when
making decision (Cashmore, 2004). These regulations have ensure that in order for a company to entitle a project’s
license, they should meet the minimum standard of environmental responsibility with by set off certain standard
for the company in order to commence the operation as well as to communicate the information publically
especially to stakeholders (Marzuki, 2009).
A large number of Malaysian companies have ISO 14001 Environmental Management System certification in
order to measure their compliance as according to Thompson (2002) , 367 Malaysian companies have ISO 14001
which is more than many developed and developing countries including the US, France, India, and China as most
of these companies may be the smaller unlisted companies that have obtained ISO 14001 as because they are
suppliers to foreign multi-national corporations that it would be the pre-condition for securing the supply contracts.
According to Alrazi, Sulaiman, and Ahmad (2009), the number of companies disclosed environmental
information growing from 47 percent in 1999 to 60 percent in 2003, and the number had increased to 67 percent
for the year 2006 as the companies used annual report as the medium of communicating environmental information
to their stakeholders as for the past few years, the number of companies provided the environmental disclosure is
growing as single-handedly for voluntarily reports or also as parts of their annual reports (Elijido-Ten, Kloot, and
Clarkson, 2010). Environmental disclosure pact with the consideration of inclusiveness of accounting procedures,
broad and any precise concern that associated to environmental and social impacts, rules and limitations (Yousef
M. et al, 2010). According to Haslinda and Glen (2006), in Malaysia, the environmental disclosure is exercising
by voluntarily. The verification of environmental disclosure is difficult without the regulations provided and thus,
if the reporting is a voluntary, the companies would only disclose the positive information instead of negative
information as it would be disadvantage for the companies (Yousef M. et al, 2010).

3. Previous environmental reporting studies and positioning of this study

The increasing trend of international CSR studies all over the world, CSR studies conducted on Malaysia
companies are following the trend with annual report, website and stand-alone report being some of the popular
option. Studies done by Sulaiman and Mokhtar (2009) and Saleh, Zulkifli, and Muhamad (2011) are among studies
that incorporate CSR as part of their studies that focused on the relationship between environmental reporting and
firm performance.
With the emergence of environmental issue, there are literature that covers on environmental disclosure and
firm performance. Reviewing the past researches, the results are mixed as there are different ways of measurement
used for the variables. There is a positive influence on the economic performance as the recognizing on the
environmental performance has gradually increasing (Sulaiman and Mokhtar, 2009). This is consistent with Saleh,
Zulkifli, and Muhamad (2011) that shows positive relationship between Corporate Social Responsibility (CSR)
on Corporate Financial Performance. The CSR measurement including environmental disclosure with financial
indicators of Return on Assets (ROA), stock market return and Tobin’s Q. While Mahoney et al. (2007) and Al-
Tuwaijiri et al. (2004) assert that there is significant relationship between environmental performance and
economic performance with more extensive quantifiable environmental disclosure.

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120 Norhasimah Md Nor et al. / Procedia Economics and Finance 35 (2016) 117 – 126

However, studies done by Sarumpaet (2005) and Rahman, Yusoff, and Mohamed (2009) shows that there is no
relationship between the environmental performance and financial performance of companies. The measurement
of financial performance used by Chiong (2010) are Return on Equtiy (ROE), revenue growth and debt to equity
found that there is negative relationship between the level of disclosure of environmental information.

Table 1: Past Research

Author Objectives Findings
Maliah Sulaiman To examine the association between environmental management Positive Relationship
Norsyahida Mokhtar accounting (EMA) and environmental reporting (ER) and the
perception of management (accountant) towards the development of
EMA in Malaysia
Susi Sarumpaet To examine relationship between environmental performance and No Relationship
financial performance of Indonesian Companies

Lois Mahoney To examines the relationship of corporate social performance (CSP) to Has significant
Robin W. Roberts financial performance (FP) and institutional ownership. relationship

Shariful Amran Abdul Rahman to examine the relationship between environmental disclosure and No relationship
Rulaina Yusoff financial performance among the companies in Malaysia, Singapore
Wan Nazihah Wan Mohamed and Thailand that voluntarily disclose environmental information in
their financial reports

Mustaruddin Salleh To examine the relationship between corporate social responsibility Positive and
Norhayah Zulkifli (CSR) and corporate financial performance (CFP) of Malaysian public significant
Rusnah Mohamad listed companies (PLCs) as an emerging market setting. relationship

Paul Tiong Nyit Chiong To investigate the relationship between corporate sustainability Negative
disclosure relationship
level and financial performance

Sulaiman A. Al-Tuwaijria To examine the relations among environmental disclosure, Has significant
Theodore E. Christensenb environmental performance, and economic performance relationship
K.E. Hughes II

4. Methodology

The population of this study comprises of the Malaysian Public Listed Companies listed on Bursa Malaysia
(formerly known as Kuala Lumpur Stock Exchange). Among the hundreds of companies, this study has narrowed
down to top 100 Company of Market Capitalization for the year 2011. The selection of top companies is due to
several reasons. The large companies undertake more activities and have larger impact on the society since they
are more visible (Hackston and Milne, 1996) and also large companies are believed to have more information
which allows them to engage more with corporate governance, social and environmental responsibility (Aerts,
Cormier, Gordon, and Magnan, 2006). Other than that, large companies have published more information and also
provide higher quality disclosure (Buniamin, 2010).
This research had set the group of companies that going to be used, thus non-probability sampling techniques
would be appropriate for this study. There are two types of sampling techniques under non-probability which are
convenience and purposive sampling. The purposive sampling is used to group the Top 100 Company of Market
Capitalization as the specific types of respondents that can provide the required information.
The data collected is secondary data by reviewing the annual report to gather the information regarding the
environmental disclosure information of the Top 100 Companies of Market Capitalization of year 2011. Annual
reports are used in this study because annual reports are acceptable and commonly used medium for social
disclosure as well as to communicate information to stakeholders (Tilt, 1994; Lodhia, 2004). Besides, annual
reports are the most accessible source of information in Malaysia. The annual reports are obtained from Bursa
Malaysia which the companies had published. The study chose to look at year 2011 because it is the latest source
of information available when the study is commenced as the incompleteness and unavailability of data for the
year 2012. The measurement of independent variables has been adopted and adapted from the journal by Razeed
(2010). As based on Razeed (2010), the environmental disclosure is simplified by providing the environmental
index. The environmental index has been tested by doing pilot test among the group members in order to conclude
the way of analysis the environmental information in the annual report as to ensure the consistency of the data
collected between each of the group member. The 10% of the total number of sample has been selected randomly
in order to conduct the pilot test which comprises of 10 companies. The information such as Return on Asset
(ROA), Earnings per Share (EPS), Return on Equity (ROE) and also profit margin need to exploit in order to
 Norhasimah Md Nor et al. / Procedia Economics and Finance 35 (2016) 117 – 126 121

measure the financial performance as the data are obtained from Bursa Malaysia as it’s already being calculated
by emailing knowledge centre of Bursa Malaysia for the request of the data.
The dependent variables of this study are the financial performance of the firm according to top 100 market
capitalization in year 2011. Prior research used Return on Asset, Return on Equity, Earnings per Share, Profit
margin and also leverage ratio as measurement of financial performance (Sarumpaet, 2005). Therefore, four
indicators that act as the measurement of financial performance are being used for the dependent variable of the
study. The four indicators that needed are Return on Assets (ROA), Earnings per Share (EPS), Return on Equity
(ROE) and profit margin in order to measure the financial performance (Sarumpaet, 2005; Moneva et al, 2010).
The measurement of independent variables has been adopted and adapted from the journal by Razeed (2010). As
based on Razeed (2010) the environmental disclosure is simplified by providing the environmental index below.
Thus, the environmental index for environmental disclosure had been used in this study as the measurement of
independent variables of this study.

Table 2: Environmental Index

No Environmental Index
1 Statement/Existence/ Disclosure of Environmental Concern
2 Steps taken to monitor compliance with policy statement
3 Environmental Targets/Standards
4 Performance against environmental targets
5 Structural and responsibility changes undertaken in the organization to develop environmental sensitivity
6 Environmental Awareness Training
7 Recognition of Government Regulations
8 Presence of Environmental Department and Personnel
9 Acknowledgement of impact of activities
10 Presence of Environmental Management System (EMS)
11 Environmental programs – Restoration/ Rehabilitation
12 Involvement with community projects
13 Environmental auditǦcompliance
14 Environmental auditǦEMS
15 Environmental programsǦResponse to environmental audits
16 Environmental Accounting Policy
17 Amount spent on environmental protection
18 Anticipated pattern of future environmental spend
19 Assessment of actual/contingent liabilities
20 Physical unit analysis of materials/energy/waste

5. Discussion on Findings

Table 3 shows the normality test to ensure that an error terms are normally circulated in the data. Based on the
Kolmogorov Smirnov test, the data was found to be not normally distributed as the result is stated in table below.
The significant value for ROA, ROE, EPS and profit margin is 0.000 as it is lower than the significant of 0.01 and
0.05. In order to get a significant result the variable must be higher than 0.05 or 0.01. From the table 4 below, the
result shows that the data is not normal. Therefore, for testing the hypotheses this study used Spearman correlation
according to the nonparametric test for an abnormal data.
Table 3: Normality test
Kolmogorov-Smirnova Shapiro-Wilk
Statistic df Sig. Statistic df Sig.
ROA .298 97 .000 .509 97 .000
ROE .190 97 .000 .768 97 .000
EPS .199 97 .000 .818 97 .000
Profit Margin .258 97 .000 .556 97 .000
a. Lilliefors Significance Correction

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122 Norhasimah Md Nor et al. / Procedia Economics and Finance 35 (2016) 117 – 126

Table 4: Descriptive Statistics

N Minimum Maximum Mean Std. Deviation Variance
Statistic Statistic Statistic Statistic Statistic Statistic
TED 100 0 19 6.16 4.939 24.398
ROA 100 -.20 .46 .0839 .08249 .007
ROE 100 -1.11 1.56 .1803 .23423 .055
EPS 100 -.42 2.52 .4489 .47544 .226
Profit Margin 100 -.18 2.83 .2557 .37250 .139

The mean value for total environmental disclosure (TED) which is the independent variable of this study is
6.16 as the mean is calculated by dividing the TED with 100 companies used for this study. The descriptive
statistics also provided for standard deviation value and variance value of TED which the standard deviation is
measurement of dispersion to explain where a data value is located with respect to the mean and the standard
deviation value is stated at 4.939 whereas the variance is at 24.398. The minimum value of TED shows that there
are companies that did not disclosed the environmental information as the value stated is 0. Besides, the maximum
value shows the highest value that the company disclosed the environmental information which stated that the
highest value of 19 out of 20 environmental indexes used in this study.
The dependent variable used in this study is financial performances as the financial performance is measured
by using ROA, ROE, EPS and profit margin. The first dependent variable is ROA which the total mean for the
variable is 0.0839 whereas the standard deviation of the variable is 0.08249 and the variance shows the value of
0.007. The maximum value show the highest ROA between the companies analysed in this study as the highest
value recorded is 0.0839 whereas the minimum value which shows the lowest ROA recorded which is -0.20.
The second dependent variable used in this study is ROE which the mean value stated for this variable is 0.1803.
The value for standard deviation and variance of this variable is 0.23423 and 0.055 respectively. The maximum
value of ROE is 1.56 and the minimum value stated for this variable is at the lowest as the value is negative value
which is -1.11. Furthermore, the third dependent variable used in this study to measure the financial performance
is EPS which the mean value of this variable is 0.4489. This variable also shows that the standard deviation of
0.47544 whereas the variance of this variable stated at 0.226. the lowest EPS recorded among 100 companies used
in this study is showed by the minimum value which is -0.42 and the highest value among the companies is
determine by the maximum value which is 2.52. Last but not least, the fourth variable used is profit margin as the
mean value stated for this variable is 0.2557.the standard deviation and the variance stated for this variable is
0.37250 and 0.139 respectively. The maximum value recorded for this variable is 2.83 whereas the minimum value
is stated a negative value of only -0.18.

Table 5: Environmental Index

No Environmental index Yes No
1 Statement/Existence/ Disclosure of Environmental Concern 48 52
2 Steps taken to monitor compliance with policy statement 39 61
3 Environmental Targets/Standards 47 53
4 Performance against environmental targets 28 72
5 Structural and responsibility changes undertaken in the organization to develop environmental sensitivity 37 63
6 Environmental Awareness Training 23 77
7 Recognition of Government Regulations 35 65
8 Presence of Environmental Department and Personnel 22 78
9 Acknowledgement of impact of activities 46 54
10 Presence of Environmental Management System (EMS) 22 78
11 Environmental programs – Restoration/ Rehabilitation 42 58
12 Involvement with community projects 46 54
13 Environmental audit (compliance) 23 77
14 Environmental audit (EMS) 16 84
15 Environmental Accounting Policy 26 74
16 Environmental programs (Response to environmental audits) 17 83
17 Amount spent on environmental protection 30 70
18 Anticipated pattern of future environmental spend 22 78
19 Assessment of actual/contingent liabilities 3 97
20 Physical unit analysis of materials/energy/waste 44 56

Table 5 shows environmental index also records that among the 20 indexes examined in the study, the highest
index that had been disclosed by most of the companies is index number one which is
statement/existence/disclosure of environmental concern with the amount of total disclosure of 48. The assessment
of actual/contingent liabilities which is index number 19 has the least index that had been disclosed in annual
report. Only three companies out of 100 that had been disclosed the index number 19.
 Norhasimah Md Nor et al. / Procedia Economics and Finance 35 (2016) 117 – 126 123

Table 6: Frequencies of Total Disclosure

Total Environmental Disclosure Frequency Percent
0 11 11.0
1 6 6.0
2 10 10.0
3 7 7.0
4 9 9.0
5 14 14.0
6 3 3.0
7 5 5.0
8 10 10.0
9 5 5.0
10 1 1.0
11 3 3.0
12 2 2.0
13 3 3.0
14 2 2.0
15 4 4.0
17 1 1.0
18 2 2.0
19 2 2.0
Total 100 100.0

The frequencies of total disclosure from the table 6 showed that there are 11% of total companies used in this
study that did not disclosed the environmental information followed with 6% and 7% that disclosed only 1 and 3
environmental disclosures respectively. The percentage of companies that disclosed a low number of disclosures
are higher as it shows that 9% of companies that only disclosed 4 disclosures. Apart from that, it also shows that
5% of companies that disclosed 7 and 9 environmental disclosures respectively. The highest total disclosure of 19
showed only 2% out of 100 companies used as the same with the total disclosure of 18. Apart from that, the highest
frequencies of 14% out of all companies used in this study only disclosed 5 disclosures in their annual report as
followed with 10% of companies that disclosed only 2 disclosures as the same percentage of companies that
disclosed 8 disclosures in their annual report. Furthermore, the frequencies of total environmental disclosures also
stated that only 1% of companies that disclosed a total environmental disclosure of 17 and 10 disclosures whereas
the number also shows that 2% of the companies disclosed a total environmental disclosure of 12 and 14
disclosures. Moreover, the analysis also shows that 3% of companies disclosed a total of 6, 11 and 13 of
environmental disclosures and 4% disclosed a total of 15 environmental disclosures.

Table 7: Correlations of Total Environmental Disclosure (TED)

TED ROA ROE EPS PM

Correlation Coefficient 1.000 -.079 -.061 .007 -.215*

Sig. (2-tailed) . .433 .548 .942 .032
TED
N 100 100 100 100 100
Correlation Coefficient -.079 1.000 .674** .383** .168
Sig. (2-tailed) .433 . .000 .000 .095
ROA
N 100 100 100 100 100
Correlation Coefficient -.061 .674** 1.000 .548** .278**
Sig. (2-tailed) .548 .000 . .000 .005
ROE N 100 100 100 100 100
Correlation Coefficient .007 .383** .548** 1.000 .352**
Sig. (2-tailed) .942 .000 .000 . .000
EPS
N 100 100 100 100 100
Correlation Coefficient -.215* .168 .278** .352** 1.000
Sig. (2-tailed) .032 .095 .005 .000 .
PM
N 100 100 100 100 100

Correlations test has been done by using Spearman’s Rho as the normality test stated that the data is not
normally distributed. It is known that the significant (2-tailed) as p-value. From the Table 7 above, it indicated

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124 Norhasimah Md Nor et al. / Procedia Economics and Finance 35 (2016) 117 – 126

that there is significant but negative relationship between TED and financial performance indicator which is profit
margin as the significant value is 0.032 at 0.05 level which is lower than 0.05. The correlation coefficient value is
-0.215 which stated that the negative is indicated as negative relationship.
Apart from that, the different results go to the relationship between TED and another two key indicator of
financial performance which is ROA and ROE. The significant value for ROA is 0.433 with the correlation
coefficient of -0.079. The result for ROE is 0.548 for its significant value and -0.061 for its correlation coefficient
value. Those two indicators show that there is insignificant value among those variables. There is also stated that
there is significant relationship TED and EPS as the significant value is 0.942 with the correlation coefficient value
of 0.007. This results leads to conclusion that there is significant relationship between TED and profit margin but
there is no relationship with other three key indicators of financial performance. Thus, the hypothesis H4 is
accepted whereas the hypothesis H1, H2 and H3 are rejected.

Table 8: Model Summary- Multiple Regression of Analysis

Model R R Square Adjusted R square Std. Error of the Estimate

1 .560a .313 .276 .39548

Table 9: ANOVA
Model Sum of Squares Df Mean Square F Sig.

1 Regression 6.559 5 1.312 8.388 .000b

Residual 14.389 92 .156
Total 20.948 97

Multiple regression tests has been conducted to explore the impact of EPS on TED, profit margin, total debt
over total asset, ROA and ROE. The total variance explained by the model as a whole was 31.3%, F (5, 92) = 8.39,
p < .001. In the final model, only the two control measures were statistically significant at 5% level, with the ROE
scale recording a higher beta value (beta = .40, p < 0.05) than the total debt over total asset scale (beta = -.21, p <
.05).

Table 10: Coefficients of Model

Model Unstandardized Coefficients Standardized t Sig.
Coefficients
B Std. Error Beta
1 (Constant) .332 .119 2.797 0.006
Return on Asset .901 1.611 .150 .560 .577
Return on Equity 1.011 .404 .424 2.501 .014
Total Debt over Total Asset
Profit Margin -.006 .003 -.210 -2.198 .030
TED -.019 .088 -.040 -.221 .825
.003 .008 .030 .344 .732

6. Conclusion

This study examines the relationship between environmental disclosures with the firms’ financial performance
of the Malaysian listed companies. Even though the environmental disclosure is a voluntary disclosure, however
most of the companies concern and contribute in preserving the environment. The companies emphasize the
disclosure of their contribution in the environmental activities as to attract the investors and as to fulfill the demand
of stakeholders groups. This is supported by Haslinda and Glen (2006) whereby it is the obligation of the business
itself in order to inform the stakeholder concerning their environmental engagement as such initiatives could assist
the business to portray sustainability business to stakeholders groups.
The finding of this study resulted there is a significant relationship between total environmental disclosure and
profit margin. Therefore the hypothesis is accepted. This is supported by Perry et al (2011) as disclosing the
environmental information would obtain market benefit as well as the ability to gain profit from investment in
environmental improvement. However, the findings for other three variables which are ROA, ROE, and EPS
showed no significant relationship between total environmental disclosures.
In general, the environmental disclosure in Malaysia is still low but it is on the growth stage as most on
Malaysian companies have alert with the environmental awareness as. This study contributes in the literature
review on the corporate governance area especially on the environmental disclosure that will assist the authority
 Norhasimah Md Nor et al. / Procedia Economics and Finance 35 (2016) 117 – 126 125
( )

body to come out with full framework or guideline on the disclosing of the environmental disclosure in the annual
report.
There are some limitations in this study. The use of annual report as research instrument which is limit to
analyze the environmental disclosure by each company as some of the company disclose their environmental
information in separate statement instead of annual report. It is recommended to analyze statement provided in
company’s website and also sustainability report of the company.
In addition , the data of this study is considered only one year due to limited time frame. Hence, for further
research, it is suggested to conduct a longitudinal study on yearly basis as it may help to trace the trend of
environmental disclosure. In additon, we are analyzing annual report for 2011 as there is unavailability of data at
the commencement of this study which is in year 2012. Thus, it is recommended to use the annual report for year
2012 as to measure the updated and current trend of environmental disclosure for the companies.
Furthermore, this study is focusing on top 100 public listed companies for market capitalization 2011. Thus, it
would be recommended to further the research by using other group in order to generalize the analysis as the
company use in this study already specified without considering small company.Moreover, the environmental
index of this research is specified to only 20 indexes as adapted and adopted from Razeed (2010). It is
recommended for future research to use other index that is more generalized as to enhance the future research to
be more effective and efficient.
Apart from that, this study only use four variables for measuring financial performance which are return on
asset (ROA), return on equity (ROE), earnings per share (EPS) and profit margin. According to Moneva et al
(2010), there are different opinions on selecting indicators for financial performances but, the most common used
are return on asset (ROA), return on equity (ROE), profit margin, cash flow, and operating profit. Thus, it would
be recommended to use other indicators to measure financial performance to give more favorable findings to the
study.

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